As we get into our dive into Q3 2021 venture capital numbers, one region in particular has our attention: Europe.
While venture capital gains in markets like India, Latin America and the larger African startup ecosystem have proved impressive, Europe has posted strong results of its own. A string of recent exits from European startup hubs makes its performance all the more intriguing.
New data indicates that France’s startup market is posting record totals in terms of dollars raised. CB Insights counts nearly $8 billion invested into French startups in the last two quarters, with the totals roughly split between the two periods. For comparison, that two-quarter figure is billions more than French startups raised in all of 2020.
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Throw in notable IPOs, including Truecaller this morning, and you have to keep at least one eye on Europe.
Our perspective on the matter is hardly unique: Techstars recently announced two new programs on the continent, one in France and one in Sweden, indicating that it too sees lots to like in Europe.
The Exchange wanted to know why the global accelerator group picked those two markets over others, how the group is approaching the amount of cash it offers for shares, if there are enough founders in Europe to fill even more accelerator batches and whether the area has the follow-on capital that it needs to support pre-seed and other early-stage startups.
So, we got on the phone with Techstars CEO Maëlle Gavet to dig into her company’s decision. Let’s talk Europe!
Why Techstars picked Paris, Stockholm
According to Techstars, its Paris accelerator will operate two classes per year, while Stockholm will run once in 2022 and twice per year from 2023 onward. This comes in addition to the programs it already runs in other European cities: London, Amsterdam, Berlin, Oslo and Turin.
Gavet didn’t try to hide that the Paris program is actually a relaunch: Techstars had already operated an accelerator in France’s capital between 2017 and 2020, albeit with a different model that it ultimately renounced. And its activities in the city go further back, with Startup Weekends and Startup Week events being held since 2009, Gavet noted.
In other words, this isn’t a matter of picking Paris over London for the first time in a post-Brexit context — but it still reflects Techstars’ bullishness about France. Gavet herself is French, but has spent most of her career abroad — and Techstars’ decision was driven by hard data: Per CB Insights, French startups raised $5.4 billion in 2020, and the number of French unicorns keeps on growing.
Similarly, Techstars’ bet on Stockholm was backed by market analysis, including the fact that Stockholm counts the highest number of tech unicorns per capita in the world after Silicon Valley. Growing VC activity in the Nordics was also a factor, Gavet told us.
However, Techstars isn’t simply following the money: Despite their rapid growth, both cities are still underserved, Gavet said. Techstars intends to harness this opportunity and not just from the perspective of launching accelerators: Its goal is to identify where it makes more sense to do its next batch of pre-seed investments.
Bullishness about Europe
When we heard that Techstars was launching more European programs, the question of supply came to mind. Are there sufficient founders to fill more pre-seed accelerators on the continent, or is Europe reaching the point of accelerator saturation? No, Gavet said, it’s “not even close” to superabundance, adding that she considers “Europe [to be] an incredible source of talent.”
Driving that human capital is a combination of factors, including that “Europe has an extremely strong educational environment, amazing infrastructure, supportive governments,” she said, which means that the continent has “everything [required] to make [its startup] ecosystem become even more successful.”
Gavet backed up her bullishness with numbers. After noting that Techstars isn’t yet present in every European national capital, she said that “there is enough space for some of [those] cities to have six, seven, eight, up to 10 programs per year,” and that “there are multiple cities in Europe that [could] easily accommodate between 50 and 100 pre-seed investments by Techstars every year.”
This helps explain why Techstars recently raised $150 million, which Gavet confirmed to The Exchange is a fund purely aimed at pre-seed investments. It will take a lot of checks to get through that mountain of capital, but the accelerator collective appears ready to open enough taps to drain the tank. (Techstars invests $20,000 in equity capital per startup and offers each an optional $100,000 convertible note.)
In a recent interview, Gavet discussed LP demand for increased exposure to European startups. We asked how recently Techstars noticed that trend. Citing her relatively recent hiring by Techstars — Gavet took over the CEO role this January — she said that it was hard to pin down the precise moment when sentiments changed, but that when she talks to LPs now, “the question of Europe has been very much top of mind” and “the appetite is definitely there now.”
And it’s accelerating. Gavet told The Exchange that it was her assessment that there is “increasing interest” in European startup investments among her LP base.
But while most of the news is good, there is no such thing as a perfect market. And Europe’s startup investing space has some wrinkles worth considering.
Is there a Series A crunch coming?
Techstars alone will help buoy the pre-seed market in Europe. But what about later stages of investing? We asked Gavet if the overall venture ecosystem in Europe has matured enough to support the number of new startups that she envisions or if it still needs more post-seed capital. “The latter,” she said.
Her company might have a place to play in helping get early-stage European startups the next checks they need. “When we enter a geography or industry, we bring with us investors,” Gavet said, “[helping] connect startups to investors.” Part of her goal with Techstars in Europe, she said, is to “help the investment ecosystem grow quite dramatically” as there is “so much more capital that can be invested in Europe.”
But while Techstars may be able to help close gaps, it’s not going to be able to do so single-handedly. That leaves some blank spaces in Europe’s startup market that are question marks for future growth.
Making that point, while French startups raised $3.86 billion in Q3 2021 — the second-greatest number we have for the country, only bested by Q2 2021 — round counts dipped sharply from 232 in the quarter ending June 30, 2021, to 169 in the following three months.
Those figures read like great news for unicorns — and indicate Techstars should have lots of opportunities to invest in earlier-stage startups.